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People v. Credit Suisse Sec. (USA) LLC - 2018 NY Slip Op 04272, 31 N.Y.3d 622, 82 N.Y.S.3d 295, 107 N.E.3d 515


CPLR 214(2) does not automatically apply to all causes of action in which a statutory remedy is sought, but only where liability would not exist but for a statute. Thus, CPLR 214(2) does not apply to liabilities existing at common law which have been recognized or implemented by statute. When this is the case, the Statute of Limitations for the statutory claim is that for the common-law cause of action, which the statute codified or implemented. 


After an investigation, respondent Eric T. Schneiderman, the Attorney General of the State of New York, filed an action against Credit Suisse Securities (USA) LLC and its affiliated entities (collectively, "Credit Suisse") for violation of the Martin Act. The complaint alleged that Credit Suisse committed multiple fraudulent and deceptive acts in connection with the creation and sale of residential mortgage-backed securities (RMBS) by leading investors to believe that they had "carefully evaluated—and would continue to monitor" the quality of loans underlying the RMBS even though Credit Suisse was aware of "pervasive flaws in the screening process" for such loans and failed to disclose them to investors. Credit Suisse filed a motion to dismiss the complaint arguing, among other things, that the action was time-barred because the operative statute of limitations was the three-year period. The Attorney General countered that the action was timely because the Martin Act was governed by a six-year limitations period and because the complaint pleaded the elements of common-law fraud. The trial court denied the motion to dismiss in its entirety, concluding that Martin Act cases based on investor fraud were governed by the six year statute of limitations. On appeal, the Appellate Division affirmed. Credit Suisse was granted leave to appeal.


Was the Martin Act governed by the six year statute of limitations?




The Court of Appeals of New York held that the three-year statute of limitations governed Martin Act claims, as applicable to "a liability, penalty or forfeiture created or imposed by statute." It held that the Martin Act imposed numerous obligations or "liabilities" that did not exist at common law, justifying the imposition of a three-year statute of limitations. The broad definition of "fraudulent practices," as repeatedly amended by the legislature and interpreted by the courts, encompassed "wrongs" not cognizable under the common law and dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors. In this respect, the Court held that the Martin Act was comparable to a claim brought under General Business Law § 349 (h), the statute prohibiting "deceptive practices" in consumer-orientated marketing and sales. However, the court ruled, while the lower courts concluded that a six-year statute of limitations applied to the Attorney General's claim under Executive Law § 63(12)—regardless of whether the specific elements of common law fraud had been made out—that holding was not correct because it was necessary to examine whether the conduct underlying the § 63(12) claim amounted to a type of fraud recognized in the common law and, if so, the action would be governed by a six-year statute of limitations. Thus, the court remitted that matter to the trial court for further proceedings.

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